CHAPTER 1

Strategic Management:
Creating Competitive
Advantages

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 Learning Objectives

After reading this chapter, you should have a good understanding

of:
1-1 The definition of strategic management and its four key
attributes.
1-2 The strategic management process and its three interrelated
and principal activities.
1-3 The vital role of corporate governance and stakeholder
management as well as how “symbiosis” can be achieved
among an organization’s stakeholders.
1-4 The importance of social responsibility, including
environmental sustainability, and how it can enhance a
corporation’s innovation strategy.
1-5 The need for greater empowerment throughout the
organization.
1-6 How an awareness of a hierarchy of strategic goals can help
an organization achieve coherence in its strategic direction.

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 The Importance of Leadership

Consider…

Maintaining competitive success or even surviving

over long periods of time is difficult for companies
of any size.

SO how much credit (or blame) does a leader

deserve?

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 Two Perspectives of Leadership

External control perspective:

External forces determine the organization’s
success.
• Economic downturns

OR

Romantic view: internal control of internal leader itself has important role

A leader is the key force in the organization’s

success.
• Steve Jobs

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 Leaders Can Make a Difference

Be proactive - anticipate change.

Refine strategies continually.
Be aware of external opportunities and threats.
Understand thoroughly the firm’s resources and
capabilities.
Make strategic management both a process and a
way of thinking throughout the organization.

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 Defining Strategic Management

Strategic management involves:

• Analysis
• Strategic goals (vision, mission, strategic objectives)
• Internal and external environment
• Decisions - Formulation
• What industries should we compete in?
• How should we compete in those industries?
• Actions – Implementation of strategy
• Allocate necessary resources.
• Design the organization to bring intended strategies
to reality.

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 Two Fundamental Questions

1. How should we compete in order to create a

competitive advantage in the marketplace?

2. How can we create competitive advantages in

the marketplace that are unique, valuable, and
difficult for rivals to copy or substitute?

NOTE: Operational effectiveness is not enough

to sustain a competitive advantage.

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 Strategic Management

Key attributes of strategic management:

• Directs the organization toward overall goals and
objectives.
• Includes multiple stakeholders in decision
consult with them
making.
• Needs to incorporate short-term and long-term
1-2 years
perspectives.
• Recognizes trade-offs between efficiency and
effectiveness.

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 Strategic Management Trade-offs

Managers need to be ambidextrous.

Focus on long-term effectiveness.
• Expand product-market scope by proactively
exploring new opportunities.
At the same time:
• Focus on short-term efficiency.
• Align resources to take advantage of existing
product markets.

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 Question
(1 of 2)

According to Henry Mintzberg, the realized

strategies of a firm
A. are a combination of deliberate and emergent
strategies.
B. are a combination of deliberate and
differentiation strategies.
C. must be based on a company’s strategic plan.
D. must be kept confidential for competitive
reasons.

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 Intended vs. Realized Strategies

The business environment is far from predictable.

Intended strategy
• Organizational decisions are determined only by
analysis.
• Intended strategies rarely survive in the original form.
VERSUS
Realized strategy
• Decisions are determined by both analysis (deliberate)
and unforeseen environmental developments,
unanticipated resource constraints, and/or changes in
managerial preferences (emergent).

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 Strategic Management Process

Exhibit 1.3 The

Strategic
Management
Process

Jump to Appendix 1 for long

description.

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 Strategy Analysis
(1 of 3)

Strategy analysis is the starting point in the

strategic management process.
The analysis needs to be done to effectively
formulate and implement strategies.
It involves careful analysis of the overarching goals
of the organization.
It requires a thorough analysis of the organization’s
external and internal environment.

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 Strategy Analysis
(2 of 3)

Analyzing organizational goals & objectives

• Establish a hierarchy of goals.
• Vision
• Mission
• Strategic Objectives

Analyzing the external environment of the

firm
• Managers must monitor and scan the environment
as well as analyze competitors.
• General environment
• Industry environment

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 Strategy Analysis
(3 of 3)

Assessing the internal environment of the firm

• Analyze strengths & relationships among activities
that constitute a firm’s value chain.
• Analysis can uncover potential sources of
competitive advantage. create value
-make them competitive with other co
cth: MAS vs AirAsia
Assessing a firm’s intellectual assets
• Knowledge workers & other intellectual assets drive
competitive advantage & wealth creation.
• Networks & relationships plus technology enhance
collaboration, accumulates & stores knowledge.

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 Strategy Formulation
(1 of 3)

Based on strategy analysis, strategy

formulation is developed at several levels.
• Business-level strategy − how to compete in a
given business to attain competitive advantage
• Corporate-level strategy − what businesses to
compete in; how businesses can be managed to
achieve synergy
• International strategy − what strategies are
needed as the business ventures beyond its
national boundaries
• Entrepreneurial initiatives − how can businesses
create new value

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 Strategy Formulation
(2 of 3)

Formulating business-level strategy

• Successful firms develop bases for sustainable
competitive advantage through:
• Cost leadership and/or
• Differentiation, as well as
• Focusing on a narrow or industrywide market segment.

Formulating corporate-level strategy

• Addresses a firm’s portfolio (or group) of businesses
• What business or businesses should we compete in?
• How can we manage this portfolio of businesses to create
synergies? the cooperation of two or more org to produce combine effect
greater than the sum of their separate effects
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 Strategy Formulation
(3 of 3)

Formulating international strategy import<>export

• What is the appropriate entry strategy?
• How do we go about attaining competitive
advantage in international markets?
Entrepreneurial strategy and competitive
dynamics
capable of working succesfully
• How do we recognize viable opportunities?
• How do we formulate effective strategies?

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 Strategy Implementation
(1 of 5)

Strategy implementation takes action to

implement the formulated strategy.
• Ensure proper strategic control systems.
• Establish an appropriate organizational design,
coordinating & integrating activities within the firm.
• Coordinate activities with suppliers, customers,
alliance partners.
• Leadership ensures organizational commitment to
excellence & ethical behavior.
• Promote learning & continuous improvement.
• Act entrepreneurially in creating new opportunities.
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 Strategy Implementation
(2 of 5)

Strategic control & corporate governance

• Informational control
• Monitor & scan the environment
• Respond effectively to threats & opportunities
• Behavioral control internal matters
• Proper balance of rewards & incentives
• Appropriate cultures & boundaries (or constraints)
• Effective corporate governance
make sure co comply with rule and regulations

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 Strategy Implementation
(3 of 5)

Creating effective organizational designs

• Organizational structures must be consistent with
strategy.
• Organizational boundaries must be flexible &
permeable.
• Strategic alliances must capitalize on capabilities of
other organizations.

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 Strategy Implementation
(4 of 5)

Creating a learning organization & an ethical

organization
• Effective leaders
• Set a direction.
• Design the organization.
• Develop an organization committed to excellence &
ethical behavior.
• Create a “learning organization”
• Benefit from individual & collective talents
staff actively ask questions

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 Strategy Implementation
(5 of 5)

Fostering corporate entrepreneurship

• Firms must continually improve & grow.
• Firms must find new ways to renew themselves.
• Entrepreneurship & innovation provide for new
opportunities enhance a firm’s innovative capacity.

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 Corporate Governance & Stakeholder
Management

Appropriate strategic management requires an

effective & appropriate corporate structure.
Corporate governance is the relationship among
various participants in determining the direction and
performance of corporations.
Primary participants:
only cover this three stakeholders
• Shareholders
• Management (led by the Chief Executive Officer)
• The Board of Directors (BOD)

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 Corporate Governance

Board of Directors
Elected representatives of
the owners
Ensure interests & motives
of management are aligned
with those of the owners:
• Create an effective and
engaged board.
• Address shareholder
activism.
• Provide proper managerial
rewards & incentives.
• Establish external control
Exhibit 1.4 The Key Elements of Corporate Governance
mechanisms.

Jump to Appendix 2 for long description.

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 Stakeholder Management

Stakeholder Group Nature of Claim

Employees Wages, benefits, safe working environment, job
security
Suppliers Payment on time, assurance of continued
relationship
Creditors Payment of interest, repayment of principal

Customers Value, warranties

Government Taxes, compliance with regulations

Community Good citizenship behavior such as charities,

employment, not polluting the environment

Exhibit 1.5 An Organization’s Key Stakeholders & the Nature of Their Claims

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 Two Views of Stakeholder Management

Two views of stakeholder management

Zero sum
• Stakeholders compete for attention & resources.
• The gain of one is a loss to the other.
OR
Symbiosis
• Stakeholders are dependent upon each other for
success & well-being.
• Stakeholders receive mutual benefits.

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 Question
(2 of 2)

P&G created a cleaning product that led to a change

in consumer shopping habits and also a revolution
in industry supply chain economics. According to
the text, this is an example of
A. zero-sum relationship among stakeholders.
B. stakeholder symbiosis.
C. rewarding stakeholders.
D. emphasizing financial returns.

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 Social Responsibility & Environmental
Sustainability

Firms have multiple stakeholders and must go

beyond a focus solely on financial results.
Social responsibility is the expectation that
businesses or individuals will strive to improve the
overall welfare of society.
Firms can measure a triple bottom line, assessing
financial, social, AND environmental performance.
Sustainability projects can yield substantial benefits
even when they are difficult to quantify.

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 Empowered Strategic Management

Strategic management requires an integrative

view of the organization.
ALL functional areas & activities must fit together to
achieve goals & objectives.
Leaders are needed throughout.
• Local line leaders – have profit & loss
responsibility
• Executive leaders – champion & guide ideas
• Internal networkers – hold little positional
power, but have conviction & clarity of ideas

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 Coherence in Strategic Direction
(1 of 5)

Organizations express priorities best through stated

goals & objectives that form a hierarchy of goals.
• Vision evokes powerful & compelling mental
images of a shared future.
• Mission encompasses the organization’s current
purpose, basis of competition, & competitive
advantage.
• Strategic objectives operationalize the mission
statement with specific yardsticks.

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 Coherence in Strategic Direction
(2 of 5)

long time horizon

Exhibit 1.6 A Hierarchy of Goals

Jump to Appendix 3 for long description.

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 Coherence in Strategic Direction
(3 of 5)

Organizational vision
• A “massively inspiring” goal, overarching, long
term
• A destination driven by & evoking passion
• Developed & implemented by leadership
• A fundamental statement of an organization’s
values, aspirations, and goals
• Captures both the minds & hearts of employees
• BUT can backfire and erode a company’s credibility

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 Coherence in Strategic Direction
(4 of 5)

Mission statement
• Encompasses both the purpose of the company and
the basis of competition and competitive advantage
• More specific than the vision
• Focuses on the means by which the firm will
compete
• Incorporates stakeholder management
• Communicates why an organization is special &
different
• Can & should change when competitive conditions
change
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 Coherence in Strategic Direction
(5 of 5)

Strategic objectives
• Used to operationalize the mission statement
• Provide guidance on how to fulfill mission & vision
• Measurable, specific, appropriate, realistic & timely
• Channel all employees’ efforts toward common
goals
• Can be both financial and nonfinancial
• Should be challenging, yet help resolve conflicts
• Provide a yardstick for rewards & incentives
• BUT too many objectives can result in lack of focus
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 ADA APPENDICES

Descriptions of Images

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 Appendix 1 The Strategic Management
Process
Map of the strategic management process, listing all chapters and their titles.

The chapters for Strategy Analysis are

Chapter 1, Introduction and Analyzing Goals and Objectives.

Chapter 2, Analyzing the External Environment.

Chapter 3, Analyzing the Internal Environment.

Chapter 4, Assessing Intellectual Capital.

The chapters concerning Strategy Formulation are

Chapter 5, Formulating Business-level Strategies.

Chapter 6, Formulating Corporate-Level Strategies.

Chapter 7, Formulating International Strategies.

Chapter 8, Entrepreneurial Strategy and Competitive Dynamics.

Strategy Implementation chapters are

Chapter 9, Strategic Control and Corporate Governance.

Chapter 10, Creating Effective Organizational Designs.

Chapter 11, Strategic Leadership Excellence, Ethics, and Change.

Chapter 12, Fostering Corporate Entrepreneurship.

and Chapter 13 concerns Case Analysis.

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 Appendix 2 Corporate Governance
The graphic is a triangle with Management (headed
by the chief executive officer) at the pinnacle, the
Board of Directors (elected by the shareholders to
represent their interests) at the bottom right corner
and Shareholders (owners) at the bottom left
corner. This shows, that as Monks and Minow
define, it is a “relationship among various
participants in determining the direction and
performance of corporations.”

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Appendix 3 Coherence in Strategic Direction
(2 of 5)

The graphic depicts the hierarchy of goals as a triangle on

the left, with vision at the top, mission statement in the
middle, and strategic objectives at the base. To the right of
the triangle is a graphic showing an arrow going both ways
between general (vision) and specific (strategic objectives)
and another arrow going both ways between long time
horizon (vision) and short time horizon (strategic objectives).
Visions might be a general message, lacking specifics,
whereas strategic objectives would be more specific,
containing details. Visions have longer time horizons than
would strategic objectives.

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